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Speaking as a pedant: The top marginal rate is actually 60% and happens when you cross the threshold where you're nominally in the 40% band but you're also losi
by azornathogron 3y ago
Speaking as a pedant:
The top marginal rate is actually 60% and happens when you cross the threshold where you're nominally in the 40% band but you're also losing your personal allowance. The effect is, for every £2 extra income you lose £1 personal allowance (exposing an extra £1 to taxation) and pay 40p tax on that. That's 20% in addition to the 40% you're paying anyway, hence 60% marginal rate. Once you hit the income level where all your personal allowance has been fully cancelled out, then your marginal rate drops back down. And then the next threshold after that puts you in the 45% band.
- ac2u 3y agoyeah if you're on that rate and not dumping every penny you can into your pension allowance each year (and using up any unused allowance for previous three years), you're crazy.
- c7THEC2DDFVV2V 3y agowhats crazy is forcing people to save for something they have no guarantee of seeing. Giving the pension age keeps increasing a pension is nothing more than paying into a pot you will never be able to fully use. Especially given how people are taxed on their pension payments.
- dan-robertson 3y agoTo be fair, the amount people are forced(?) to put into pensions from employment income is pretty tiny and there are tax-advantages savings accounts which people can use instead of pensions, up to a limit. There are also limits on incentives for pension contributions.
- fshbbdssbbgdd 3y agoIf you compute that way, you can find situations in the US where the effective marginal tax rate exceeds 100% due to the phase-out of various benefits: https://www.urban.org/sites/default/files/alfresco/publication-pdfs/412722-How-Marginal-Tax-Rates-Affect-Families-at-Various-Levels-of-Poverty.PDF https://www.urban.org/sites/default/files/alfresco/publicati...